Tech Giants Drive S&P 500 Rebound With 19% Gain

Technology giants have once again become the driving force behind the S&P 500 index, thanks to their robust profit engines. This shift is particularly notable given that these same companies had previously dragged the index to the brink of a bear market in April. The strong financial performance of these tech giants has provided a significant boost to the overall market, with companies like NVIDIA and Microsoft leading the charge.

NVIDIA's strong revenue outlook capped off an impressive earnings season for tech giants, with both NVIDIA and Microsoft's stock prices rebounding to near historical highs. This has led traders to bet that these companies will continue to drive the broader market higher. Market strategists have expressed satisfaction with the performance of tech stocks during this earnings season, indicating that there is still room for growth in this sector.

The S&P 500 index is now just 4% away from its February high, largely due to the easing of trade tensions between the U.S. and its partners, as well as the strong performance of tech giants. Despite ongoing threats of tariffs, demand for cloud computing services, software, electronic devices, and digital advertising remains robust. Since the market bottomed out on April 8, Tesla's stock has surged 56%, while NVIDIA and Microsoft have seen gains of 40% and 30%, respectively.

The so-called "Magnificent Seven" stocks—NVIDIA, Microsoft, Tesla, Apple, Alphabet, Amazon, and Meta Platforms—have outperformed the S&P 500 index over the past eight weeks. This group, which accounts for about one-third of the index's weight, has contributed nearly half of the S&P 500's 19% rebound from its April low. However, despite their strong performance, these stocks have lagged behind the broader index for the year, largely due to the higher tariff risks faced by Apple and Amazon.

Looking ahead, market strategists predict that buying tech stocks on dips will be a recurring theme for the rest of the year. There is still a significant amount of capital on the sidelines, which is expected to flow into the market. However, risks remain, including the ongoing threat of tariffs and other policies from the Trump administration. The high valuation of tech stocks is another concern, with the "Magnificent Seven" index trading at a forward price-to-earnings ratio of 30 times, compared to 21 times for the S&P 500 index.

Despite these concerns, some analysts remain optimistic about the prospects for tech stocks. Keith Lerner of Truist Advisory Services believes that increasing spending on artificial intelligence computing will drive the market higher in the second half of 2025. Meta Platforms has already increased its capital expenditure forecast for the year, while Microsoft has announced plans to increase spending in the next fiscal year. This has alleviated market concerns about potential spending cuts following two years of significant investment.

The earnings outlook for the "Magnificent Seven" remains stable, with the group expected to achieve a 15% profit growth, double the expected increase for the S&P 500 index. This stability in earnings expectations, combined with the long-term growth potential of these companies, could make tech stocks a key driver of market gains later this year.